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Uber and Lyft Could Gain From U.S. Rule Defining Employment

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The Labor Department on Tuesday announced a proposal that could deem millions of janitors, construction workers and gig workers to be contractors rather than employees, its most ambitious step toward blessing the business practices of companies like Uber and Lyft.

Unlike employers, companies that rely on contractors don’t have to pay a minimum wage, overtime or a share of Social Security taxes, or contribute to unemployment insurance and provide workers’ compensation insurance.

The proposal is a so-called interpretive rule, not a regulation that has the force of law. But it could have significant influence were it to be finalized.

It would technically cover only laws that the Labor Department enforces, like the federal minimum wage and overtime rules. States and other federal agencies, like the Internal Revenue Service, would be free to make their own determinations, as California has done in a recently enacted law that effectively requires companies like Uber and Lyft to classify their workers as employees.

But employers tend to follow the department’s guidance, and the determination could have influence in other contexts and jurisdictions.

Findings of employment status typically depend on a variety of factors. But in its proposed rule, the department said two would loom over all others: the extent to which a company controls how a worker performs a job; and the opportunity that a worker has to profit in the job based on initiative, rather than simply earning a steady wage.

The department said other factors could serve as additional “guideposts,” especially if the first two pointed in opposite directions. The additional factors include how much skill the work requires, and whether the relationship between the worker and company is permanent or temporary.

“The department’s proposal aims to bring clarity and consistency to the determination of who’s an independent contractor,” Labor Secretary Eugene Scalia said in a statement.

Mr. Scalia added that the rule, put forward by the department’s wage and hour division, would make it easier to identify bona fide employees “while respecting the decision other workers make to pursue the freedom and entrepreneurialism associated with being an independent contractor.”

Critics argued that the department was making it more difficult to deem a worker to be an employee rather than simply clarifying the criteria.

“It’s certainly a narrowing of the test,” said Catherine Ruckelshaus, general counsel of the National Employment Law Project, a worker advocacy group. “Employers know the rules. Workers know the rules. Employers just don’t like where the lines are between employee and independent contractor. There really isn’t very much confusion.”

The Labor Department had already taken steps down the path of deeming gig workers to be employees. Not long after President Trump took office, the department rescinded guidance adopted under the Obama administration suggesting that gig workers like Uber and Lyft drivers met the criteria for employment status.

Last year, the department issued a so-called opinion letter advising an unnamed gig economy company whose workers clean residences that it considered them to be contractors rather than employees.

While such letters directly apply only to the companies that seek them, other companies tend to read them closely for guidance about the department’s enforcement approach. Experts noted at the time that the letter appeared to be written broadly, somewhat in the vein of a policy pronouncement rather than merely advice to a specific company.

David Weil, who ran the wage and hour division under the Obama administration and is now dean of the Heller School for Social Policy and Management at Brandeis University, said the rule proposed Tuesday was deeply flawed in elevating two factors in its analysis. “As articulated by Congress, and by many, many different courts, it is a multifactor test where no one factor predominates,” Mr. Weil said. “It is legally incorrect to say we’re going to cherry pick our two favorites. It’s not how it works.”

In a call with reporters, senior department officials said the proposal would be published in the Federal Register later this week or early next week, at which point the public would have 30 days to comment. The department has allowed longer comment periods for ambitious proposals in the past. One official said the department hoped to finalize the proposal before the end of the year.

Mr. Weil warned, however, that because the rule departs from the underlying law that defines who is an employee, it was vulnerable to being struck down by courts. A federal court recently struck down most of a similar Labor Department rule specifying when a worker can be considered to be an employee of two companies simultaneously, such as a fast-food franchise and its parent company.

While the proposed rule could affect workers in across a variety of industries, from construction to home care, the impact may be most evident in the gig economy, where a vigorous debate over workers’ employment status is playing out.

Prominent gig companies are backing a measure on the November ballot that would exempt their workers from California’s new employment law, known as Assembly Bill 5. Uber and Lyft told prospective investors in filings that treating drivers as employees would force them to rethink their business model.

Some industry officials have estimated that classifying workers as employees — and therefore covering their expenses, paying them a minimum wage and overtime, and contributing to workers’ compensation and unemployment insurance — could raise labor costs by 20 to 30 percent.

In the call with reporters on Tuesday, a senior Labor Department official said that the proposed federal rule “sharpens” the analysis laid out in the earlier opinion letter. The proposal echoes the letter’s pronouncement that the test for classifying workers should encourage certain “innovative work arrangements” pioneered by the gig economy.

Among them is “multi-apping,” in which a worker logs into two or more gig apps at the same time and picks the most lucrative job.

Both documents also suggest that gig companies do not exercise sufficient control over workers to constitute an employment relationship, and emphasize that the companies’ main business tends to be operating a digital platform, not providing a service like transportation or housecleaning. Gig companies like Uber have made similar claims about their business, but these arguments have generally not gotten much traction in court.

“Uber appreciates the department’s focus on independent workers and is reviewing the proposed rule,” a company spokesman said. “Unlike A.B. 5, which would eliminate work for hundreds of thousands of people, this rule recognizes that the majority of workers on platforms like Uber want to stay independent.”

Critics have said the department’s logic is flawed, noting that while gig workers have some flexibility in when and how long to work, many gig companies enforce certain performance standards through their ratings systems. These critics have also argued that it defies logic to conclude that the service a customer pays for, such as transportation in Uber’s case, is not central to the company’s business.

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The Trump campaign celebrated a growth record that Democrats downplayed.

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The White House celebrated economic growth numbers for the third quarter released on Thursday, even as Joseph R. Biden Jr.’s presidential campaign sought to throw cold water on the report — the last major data release leading up to the Nov. 3 election — and warned that the economic recovery was losing steam.

The economy grew at a record pace last quarter, but the upswing was a partial bounce-back after an enormous decline and left the economy smaller than it was before the pandemic. The White House took no notice of those glum caveats.

“This record economic growth is absolute validation of President Trump’s policies, which create jobs and opportunities for Americans in every corner of the country,” Mr. Trump’s re-election campaign said in a statement, highlighting a rebound of 33.1 percent at an annualized rate. Mr. Trump heralded the data on Twitter, posting that he was “so glad” that the number had come out before Election Day.

The annualized rate that the White House emphasized extrapolates growth numbers as if the current pace held up for a year, and risks overstating big swings. Because the economy’s growth has been so volatile amid the pandemic, economists have urged focusing on quarterly numbers.

Those showed a 7.4 percent gain in the third quarter. That rebound, by far the biggest since reliable statistics began after World War II, still leaves the economy short of its pre-pandemic levels. The pace of recovery has also slowed, and now coronavirus cases are rising again across much of the United States, raising the prospect of further pullback.

“The recovery is stalling out, thanks to Trump’s refusal to have a serious plan to deal with Covid or to pass a new economic relief plan for workers, small businesses and communities,” Mr. Biden’s campaign said in a release ahead of Thursday’s report. The rebound was widely expected, and the campaign characterized it as “a partial return from a catastrophic hit.”

Economists have warned that the recovery could face serious roadblocks ahead. Temporary measures meant to shore up households and businesses — including unemployment insurance supplements and forgivable loans — have run dry. Swaths of the service sector remain shut down as the virus continues to spread, and job losses that were temporary are increasingly turning permanent.

“With coronavirus infections hitting a record high in recent days and any additional fiscal stimulus unlikely to arrive until, at the earliest, the start of next year, further progress will be much slower,” Paul Ashworth, chief United States economist at Capital Economics, wrote in a note following the report.

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Black and Hispanic workers, especially women, lag in the U.S. economic recovery.

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The surge in economic output in the third quarter set a record, but the recovery isn’t reaching everyone.

Economists have long warned that aggregate statistics like gross domestic product can obscure important differences beneath the surface. In the aftermath of the last recession, for example, G.D.P. returned to its previous level in early 2011, even as poverty rates remained high and the unemployment rate for Black Americans was above 15 percent.

Aggregate statistics could be even more misleading during the current crisis. The job losses in the initial months of the pandemic disproportionately struck low-wage service workers, many of them Black and Hispanic women. Service-sector jobs have been slow to return, while school closings are keeping many parents, especially mothers, from returning to work. Nearly half a million Hispanic women have left the labor force over the last three months.

“If we’re thinking that the economy is recovering completely and uniformly, that is simply not the case,” said Michelle Holder, an economist at John Jay College in New York. “This rebound is unevenly distributed along racial and gender lines.”

The G.D.P. report released Thursday doesn’t break down the data by race, sex or income. But other sources make the disparities clear. A pair of studies by researchers at the Urban Institute released this week found that Black and Hispanic adults were more likely to have lost jobs or income since March, and were twice as likely as white adults to experience food insecurity in September.

The financial impact of the pandemic hit many of the families that were least able to afford it, even as white-collar workers were largely spared, said Michael Karpman, an Urban Institute researcher and one of the studies’ authors.

“A lot of people who were already in a precarious position before the pandemic are now in worse shape, whereas people who were better off have generally been faring better financially,” he said.

Federal relief programs, such as expanded unemployment benefits, helped offset the damage for many families in the first months of the pandemic. But those programs have mostly ended, and talks to revive them have stalled in Washington. With virus cases surging in much of the country, Mr. Karpman warned, the economic toll could increase.

“There could be a lot more hardship coming up this winter if there’s not more relief from Congress, with the impact falling disproportionately on Black and Hispanic workers and their families,” he said.

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Ant Challenged Beijing and Prospered. Now It Toes the Line.

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As Jack Ma of Alibaba helped turn China into the world’s biggest e-commerce market over the past two decades, he was also vowing to pull off a more audacious transformation.

“If the banks don’t change, we’ll change the banks,” he said in 2008, decrying how hard it was for small businesses in China to borrow from government-run lenders.

“The financial industry needs disrupters,” he told People’s Daily, the official Communist Party newspaper, a few years later. His goal, he said, was to make banks and other state-owned enterprises “feel unwell.”

The scope of Mr. Ma’s success is becoming clearer. The vehicle for his financial-technology ambitions, an Alibaba spinoff called Ant Group, is preparing for the largest initial public offering on record. Ant is set to raise $34 billion by selling its shares to the public in Hong Kong and Shanghai, according to stock exchange documents released on Monday. After the listing, Ant would be worth around $310 billion, much more than many global banks.

The company is going public not as a scrappy upstart, but as a leviathan deeply dependent on the good will of the government Mr. Ma once relished prodding.

More than 730 million people use Ant’s Alipay app every month to pay for lunch, invest their savings and shop on credit. Yet Alipay’s size and importance have made it an inevitable target for China’s regulators, which have already brought its business to heel in certain areas.

These days, Ant talks mostly about creating partnerships with big banks, not disrupting or supplanting them. Several government-owned funds and institutions are Ant shareholders and stand to profit handsomely from the public offering.

The question now is how much higher Ant can fly without provoking the Chinese authorities into clipping its wings further.

Excitable investors see Ant as a buzzy internet innovator. The risk is that it becomes more like a heavily regulated “financial digital utility,” said Fraser Howie, the co-author of “Red Capitalism: The Fragile Financial Foundation of China’s Extraordinary Rise.”

“Utility stocks, as far as I remember, were not the ones to be seen as the most exciting,” Mr. Howie said.

Ant declined to comment, citing the quiet period demanded by regulators before its share sale.

The company has played give-and-take with Beijing for years. As smartphone payments became ubiquitous in China, Ant found itself managing huge piles of money in Alipay users’ virtual wallets. The central bank made it park those funds in special accounts where they would earn minimal interest.

After people piled into an easy-to-use investment fund inside Alipay, the government forced the fund to shed risk and lower returns. Regulators curbed a plan to use Alipay data as the basis for a credit-scoring system akin to Americans’ FICO scores.

China’s Supreme Court this summer capped interest rates for consumer loans, though it was unclear how the ceiling would apply to Ant. The central bank is preparing a new virtual currency that could compete against Alipay and another digital wallet, the messaging app WeChat, as an everyday payment tool.

Ant has learned ways of keeping the authorities on its side. Mr. Ma once boasted at the World Economic Forum in Davos, Switzerland, about never taking money from the Chinese government. Today, funds associated with China’s social security system, its sovereign wealth fund, a state-owned life insurance company and the national postal carrier hold stakes in Ant. The I.P.O. is likely to increase the value of their holdings considerably.

“That’s how the state gets its payoff,” Mr. Howie said. With Ant, he said, “the line between state-owned enterprise and private enterprise is highly, highly blurred.”

China, in less than two generations, went from having a state-planned financial system to being at the global vanguard of internet finance, with trillions of dollars in transactions being made on mobile devices each year. Alipay had a lot to do with it.

Alibaba created the service in the early 2000s to hold payments for online purchases in escrow. Its broader usefulness quickly became clear in a country that mostly missed out on the credit card era. Features were added and users piled in. It became impossible for regulators and banks not to see the app as a threat.

ImageAnt Group’s headquarters in Hangzhou, China.
Credit…Alex Plavevski/EPA, via Shutterstock

A big test came when Ant began making an offer to Alipay users: Park your money in a section of the app called Yu’ebao, which means “leftover treasure,” and we will pay you more than the low rates fixed by the government at banks.

People could invest as much or as little as they wanted, making them feel like they were putting their pocket change to use. Yu’ebao was a hit, becoming one of the world’s largest money market funds.

The banks were terrified. One commentator for a state broadcaster called the fund a “vampire” and a “parasite.”

Still, “all the main regulators remained unanimous in saying that this was a positive thing for the Chinese financial system,” said Martin Chorzempa, a research fellow at the Peterson Institute for International Economics in Washington.

“If you can’t actually reform the banks,” Mr. Chorzempa said, “you can inject more competition.”

But then came worries about shadowy, unregulated corners of finance and the dangers they posed to the wider economy. Today, Chinese regulators are tightening supervision of financial holding companies, Ant included. Beijing has kept close watch on the financial instruments that small lenders create out of their consumer loans and sell to investors. Such securities help Ant fund some of its lending. But they also amplify the blowup if too many of those loans aren’t repaid.

“Those kinds of derivative products are something the government is really concerned about,” said Tian X. Hou, founder of the research firm TH Data Capital. Given Ant’s size, she said, “the government should be concerned.”

The broader worry for China is about growing levels of household debt. Beijing wants to cultivate a consumer economy, but excessive borrowing could eventually weigh on people’s spending power. The names of two of Alipay’s popular credit functions, Huabei and Jiebei, are jaunty invitations to spend and borrow.

Huang Ling, 22, started using Huabei when she was in high school. At the time, she didn’t qualify for a credit card. With Huabei’s help, she bought a drone, a scooter, a laptop and more.

The credit line made her feel rich. It also made her realize that if she actually wanted to be rich, she had to get busy.

“Living beyond my means forced me to work harder,” Ms. Huang said.

First, she opened a clothing shop in her hometown, Nanchang, in southeastern China. Then she started an advertising company in the inland metropolis of Chongqing. When the business needed cash, she borrowed from Jiebei.

Online shopping became a way to soothe daily anxieties, and Ms. Huang sometimes racked up thousands of dollars in Huabei bills, which only made her even more anxious. When the pandemic slammed her business, she started falling behind on her payments. That cast her into a deep depression.

Finally, early this month, with her parents’ help, she paid off her debts and closed her Huabei and Jiebei accounts. She felt “elated,” she said.

China’s recent troubles with freewheeling online loan platforms have put the government under pressure to protect ordinary borrowers.

Ant is helped by the fact that its business lines up with many of the Chinese leadership’s priorities: encouraging entrepreneurship and financial inclusion, and expanding the middle class. This year, the company helped the eastern city of Hangzhou, where it is based, set up an early version of the government’s app-based system for dictating coronavirus quarantines.

Such coziness is bound to raise hackles overseas. In Washington, Chinese tech companies that are seen as close to the government are radioactive.

In January 2017, Eric Jing, then Ant’s chief executive, said the company aimed to be serving two billion users worldwide within a decade. Shortly after, Ant announced that it was acquiring the money transfer company MoneyGram to increase its U.S. footprint. By the following January, the deal was dead, thwarted by data security concerns.

More recently, top officials in the Trump administration have discussed whether to place Ant Group on the so-called entity list, which prohibits foreign companies from purchasing American products. Officials from the State Department have suggested that an interagency committee, which also includes officials from the departments of defense, commerce and energy, review Ant for the potential entity listing, according to three people familiar with the matter.

Ant does not talk much anymore about expanding in the United States.

Ana Swanson contributed reporting.

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